I was interested to read Ms King's letter in Money Marketing last week regarding the market value reduction applied on one of her client's with-profits bond encashments.
Advisers need to be careful (and indeed to check their PI policies). For many years, we have been sounding alarm bells about the whole concept and last autumn published a guide, With-profits Bonds – Have You Been Myth Sold?
The average adviser either does not understand or has ignored the inefficient taxation regime, the extortionate char-ging terms and profit-share to the proprietary companies and superior alternatives which are certainly not so opaque.
Even now, certain insurance companies and advisers continue to state that ordinary bonuses can never be taken away once added, so just what is an MVR? Death is a poor route to securing that guarantee, is it not?
Of course, if it is found that the insurance companies have been misleading and failed to place adequate emphasis on the likelihood that a reduction in encashment value could apply, compensation of several billions can be paid from the same with profits-funds, of course. Is that not what usually happens?
With these warnings, yes, the insurance companies will have some serious answers to give (especially as readers may recall my recent article as to why the main stockmarket indices will not make rapid progress because of mechanical adjustments to major stock weightings during the technology boom) so the future is bleak. Conversely, advisers who understand a little more about the underlying invest-ment markets should do well if they avoid these obvious traps.
Milton Investment Management,